Income Inequality, Fiscal Decentralization and Transfer Dependency

Caroline-Antonia Goerl and Mike Seiferling

No 2014/064, IMF Working Papers from International Monetary Fund

Abstract: Within the context of reigniting post crisis macroeconomic growth, income inequality has emerged as a topic of significant interest for both academics and policymakers (Bastagli, Coady, and Gupta, 2012) This study builds on past literature on fiscal decentralization suggesting that redistribution is most effectively carried out at sub-central levels of government. Using the IMF’s multi-sector Government Finance Statistics Yearbook database, this paper tests the impact of decentralized redistribution on income inequality for a globally representative sample of countries since 1980. The findings suggest that the decentralization of government expenditure can help achieve a more equal distribution of income. However, several conditions need to be fulfilled: i) the government sector needs to be sufficiently large, ii) decentralization should be comprehensive, including redistributive government spending, and, iii) decentralization on the expenditure side should be accompanied by adequate decentralization on the revenue side, such that subnational governments rely primarily on their own revenue sources as opposed to intergovernmental transfers.

Keywords: WP; government redistribution; income inequality; fiscal decentralization; transfer dependency; COFOG; government finance statistics yearbook; recipient government; government activity; government expansion; Income distribution; Fiscal federalism; Total expenditures; Europe; Caribbean; Sub-Saharan Africa; Asia and Pacific (search for similar items in EconPapers)
Pages: 26
Date: 2014-04-16
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=41487 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2014/064

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().